Upstream entities will need to shoulder more responsibility in the warning process after August 30th.

By Michael G. Romey and Lucas I. Quass

As discussed in Latham’s previous post, August 30, 2018 will mark a significant change in the enforcement of the Safe Drinking Water and Toxic Enforcement Act of 1986, also known as Proposition 65 (Prop 65). California’s Office of Environmental Health Hazard Assessment (OEHHA), which is responsible for the implementation of Prop 65, published new regulations in 2016 (2016 Regulations) that will adjust how businesses provide what OEHHA deems “clear and reasonable” warnings to consumers about products that may result in an exposure to a chemical listed by the State as potentially causing cancer and/or reproductive harm. Among other obligations, the 2016 Regulations will require businesses to provide consumers with more information about chemicals listed under Prop 65 in consumer products, whether bought online or in person. The 2016 Regulations also explain which entities in the chain of commerce are primarily responsible for compliance with particular Prop 65 requirements.

Specifically, the 2016 Regulations impose more responsibility on upstream entities, such as manufacturers, distributors, packagers, importers, producers, and suppliers (Upstream Entities), shifting the primary burden away from retailers. See CAL. CODE REGS. tit. 27, § 25600.2(a) (2016). This increase in responsibility is based on OEHHA’s understanding that Upstream Entities possess superior knowledge about which chemicals are involved in producing consumer products. The 2016 Regulations also provide retailers with the opportunity to secure legal indemnity via written agreement with Upstream Entities. Id. § 25600.2(i).

This blog post is part of a continuing series on Prop 65 compliance issues aimed at entities within the California chain of commerce, as the 2016 Regulations become effective on August 30, 2018. The 2016 Regulations are applicable to products manufactured on or after August 30, 2018.

I. SUMMARY OF REVISED PROP 65 BURDENS

Prop 65 warnings must be provided for any product that exposes California consumers “to a chemical known to the state to cause cancer or reproductive toxicity without first giving clear and reasonable warning … ”. CAL. HEALTH & SAF. CODE § 25249.6 (2018). Unless a retailer takes action concerning a product which causes it to require a Prop 65 warning, Upstream Entities are responsible for Prop 65 compliance. CAL. CODE REGS. tit. 27, § 25600.2(a–c). This includes physical product sales, as well as Internet and catalog sales. Upstream Entities may comply with Prop 65 by applying a label to the product or issuing a written notice containing the warning to the next downstream entity. Id. § 25600.2(b−c).

Upstream Entities that decide to place warnings directly on-product are responsible for the warning’s presentation, which must be “prominently displayed” relative to other consumer information. Id. § 25601(c). To comply with Prop 65, the safe harbor language in the 2016 Regulations may be used, which is recommended because such language is automatically deemed clear and reasonable. Id. § 25600(b). Alternatively, the 2016 Regulations permit the upstream entity to provide other equivalent warning language, though this may not be the most protective approach. See § 25600(a).

To limit their liability under Prop 65, Upstream Entities that decide to issue a written notice must send the notice to the retailer’s authorized agent and satisfy a number of conditions, including the following:

1. Stating that the product may result in an exposure to one or more listed chemicals.
2. Naming or describing the product, or its specific identifying information.
3. Providing the exact content of the Prop 65 warnings to be displayed.
4. Providing the applicable warning materials, such as labels, tags, signs, or other physical medium through which the warning will be displayed. Id.

Selecting to give notice requires compliance with a number of timing considerations as well. The notice must be renewed after the first six months, and then annually as long as the product is sold in California. Id. § 25600.2(c)(1). If additional information is discovered regarding the chemical makeup of the product, such that the Prop 65 warning must be updated, additional notice must be sent within 90 days. Id. § 25699.2(c)(2). The 90-day timeframe also applies if an additional chemical name must be listed. Id.

Once Upstream Entities provide warning content by notice or on the product, the retailer has the burden to provide that information for online or catalog sales. Id. § 25600.2(d). Click here for more information on internet and catalog sales requirements.

II. POTENTIAL PATH FORWARD

Businesses involved in the production or sale of Prop 65-triggering products should update their terms and conditions to ensure compliance with the 2016 Regulations across the supply chain. Updating terms and conditions may help insulate such businesses from the costs associated with Prop 65 litigation.

Legal indemnity, as recognized by the 2016 Regulations, may also exist as an additional form of protection for retailers. Id. § 25600.2(i). The 2016 Regulations provide that as long as consumers receive a Prop 65 warning before purchase, retailers and Upstream Entities may decide whose responsibility it is to provide the Prop 65 warning to the consumer. Id. Both businesses may sign a written agreement acknowledging the decision. Id. If the agreement alleviates one business’s legal responsibility to provide Prop 65 warnings, the agreement may provide legal indemnity to that business. Id.

The opportunity for legal indemnity exists in addition to contractual indemnity. Parties may wish to consider entering into both types of agreements. Contractual indemnity provides a monetary remedy to the party indemnified, but still may subject them to legal proceedings. Utilizing the indemnity provisions of Prop 65 may allow a retailer to exit a lawsuit entirely (see id. § 25600.2(i)), saving the retailer considerable effort that would otherwise be expended by participating in litigation.

Upstream Entities and retailers should be aware of their prospective responsibilities when the 2016 Regulations take effect on August 30th. Upstream Entities should make decisions now regarding the application of Prop 65 to their products in order to implement a compliance strategy. Likewise, retailers should seek to ensure that they do not take any action to obscure a Prop 65 warning or cause a product to require a Prop 65 warning. Retailers should also consider updating indemnity language in their agreements to invoke the new regulations with vendors before August 30th.

For any further questions about the 2016 Regulations, please contact one of the authors or the Latham lawyer with whom you usually consult.

This post was prepared with the assistance of Abby Timmons in the Orange County office of Latham & Watkins.